A day before the goods and services tax (GST) Council meeting on Saturday, West Bengal Finance Minister Amit Mitra wrote to his Union counterpart Nirmala Sitharaman, expressing contention against the proposed hike in rates of textiles, footwear, fertilizers, and mobile phones amid “very difficult times”.
He said the proposed hike, aimed to correct the inverted duty structure, must be deferred as markets in India were facing a double whammy of stagflation and coronavirus (COVID-19) outbreak. Acknowledging that the inverted duty structure had created a set of problems, Mitra said it needed to be addressed suitably but once economy stabilised.
“May I urge you not to make any changes in the rate structure during these perilous economic times, particularly keeping in mind the interest of the common people?” he said in the letter on Friday.
“I, therefore, suggest that you defer this issue in the upcoming GST Council meeting and take it up for discussion when the economy of India has stabilised reasonably and the COVID-19 matter is not a burning issue,” said Mitra, who will not attend the 39th Council meeting in New Delhi owing to his “pre-occupation with Budget session in the Assembly” and health issues. He had requested for his participation via video conference, which was not responded to.
Inverted duty structure arises when the GST rate on raw material is higher than finished products, resulting in higher input tax credit (ITC) outgo. A registered taxpayer can claim refund of unclaimed ITC on account of higher tax on input and lower tax on output.
The GST rate on mobile phones is 12 per cent, whereas that on phone parts and batteries is 18 per cent, resulting in an inverted tax structure, creating case of unutilised ITC and hence issuance of refunds by the government.
Mitra pointed out that any upward revision in duties, even to purportedly correct the inverted duty structure, might send a very wrong signal to the businesses as well as consumers. He suggested the sectors under consideration were very basic to the common people of India like textiles and footwear, aside from fertilizer and mobiles. Textiles and footwear are large scale employers and any negative effect on their markets may lead to serious job losses.
The GST rate on fabric is proposed to be hiked to 12 per cent from 5 per cent to correct the inverted tax structure. Fabric has a GST rate of 5 per cent, whereas different types of yarns are taxed at 12 per cent. As for shoes, those prices under Rs 1,000 are taxed at 5 per cent, while the rate of inputs like non-woven fabric and leather falls under 12 per cent slab. The rate on chemical fertilizers is proposed to be hiked from 5 per cent to 12 per cent.
“I can only hope that … in an attempt to correct one type of error made in the GST rates, we do not let loose further downturn in major job intensive sectors and the agrarian economy,” said Mitra.